BLBG:Treasuries Snap Loss on Outlook for Federal Reserve
Treasuries snapped a loss from yesterday on speculation the Federal Reserve will reiterate the need for low borrowing costs at the end of a two-day policy meeting that starts today.
JPMorgan Asset Management said demand for safety is supporting bonds, including corporate debt. The U.S. is scheduled to sell $35 billion of two-year notes today, the same amount of five-year debt tomorrow and $29 billion of seven-year securities on Oct. 25.
U.S. 10-year notes yielded 1.80 percent as of 6:30 a.m. in London, according to Bloomberg Bond Trader data. The price of the 1.625 percent note due in August 2022 was 98 13/32. The all- time low rate was 1.38 percent set July 25.
“Yields will stay at a low level,” said Hideo Shimomura, who helps oversee the equivalent of $75 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., which is part of Japan’s largest publicly traded bank. “The Fed is targeting improvement in employment, which may take time.”
Two-year yields climbed to 0.31 percent yesterday, the most since June. The last sale of the securities on Sept. 25 drew bids for 3.6 times the amount of debt available, versus an average of 3.73 times for the past 10 auctions.
The rate on Japan’s 2022 bonds was unchanged at 0.78 percent. It has been in a range of 0.72 percent to 0.86 percent for the past three months.
Expanded Measures
At the Fed’s last meeting Sept. 13, the central bank announced that it will buy $40 billion of mortgage-backed securities a month to put downward pressure on borrowing costs. It also said it will probably keep its target for overnight borrowing between banks near zero at least through the middle of 2015.
All 21 primary dealers that trade with the Fed expect it to expand the measures before year-end to include purchases of government securities, according to a survey last week by Bloomberg News.
The Fed is also swapping short-term Treasuries in its holdings for longer-term securities to cap long-term yields as part of its efforts to spur the economy. The central bank plans to sell as much as $8 billion of Treasuries due from June 2015 to August 2015 today, according to the Fed Bank of New York’s website.
Pension funds are funneling money into bonds to cut risk, said Robert Michele, the global chief investment officer for fixed income and currency at JPMorgan Asset Management in New York.
Pension Funds
“I don’t ever remember a time when there’s been greater demand for long-term fixed-income assets from pension funds than now,” he said yesterday on the “Bloomberg Surveillance” radio program with Ken Prewitt and Tom Keene.
Pension funds would be happy to earn 4 percent to 5 percent returns, scaling back from a target of 6 percent to 8 percent a few years ago, said Michele, who helps oversee $1.3 trillion at the company.
Treasuries fell yesterday with investors reluctant to speculate on the prospects for the U.S. economy as the presidential race heads into its final two weeks. The 10-year yield rose five basis points, or 0.05 percentage point.
Republican presidential challenger Mitt Romney took issue with the growing debt when he and President Barack Obama held their third and final debate yesterday in the U.S.
Romney quoted Admiral Mike Mullen, who as Chairman of the Joint Chiefs of Staff in 2010 said the biggest U.S. security risk is the national debt.
“We have weakened our economy,” Romney said.
Obama responded that America is stronger now than when he took office. He has increased the publicly traded U.S. debt to a record $10.8 trillion.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
